Are Dispute Boards the Solution for Good Flow in Construction Projects?

The construction world is a complex one where each piece and/or phase should align with one another. Like in a washing machine, if one gear does not comply with its function properly, it will affect the rest of the system.

Subcontractors, suppliers, vendors, and others are important factors in construction projects. Even disputes have their role in construction projects because if a dispute affects the continuity of the project, it will affect the subsequent phases.

Unfortunately, it is all too often common for that to occur. A subcontractor not performing its work correctly or on time will sometimes result in a legal dispute. How to correct the subcontractor’s fault? The first option usually used by contractors (at least in Mexico) is a lawsuit.

This reactive method affects more parts of the washing machine. The natural consequence of filing a lawsuit not only hurts the commercial relationship, it further affects the on time delivery of the project.

One potential solution may be the use of dispute boards. Three factors to consider:

1. The early find and notification of a rift. Under some model contracts (like FIDIC), the contractor who finds an issue has a short time for notice. The failure to notice the issue on time may result in losing rights to arbitration. Early notice may help to find early on specific situations that can affect the project, and may force contractors to manage the project more strictly.
2. No suspension of work. One potential benefit of dispute boards is that the project work continues. In other words, the project will continue while the parties are attempting to resolve the dispute.
3. Impartial members appointed by the parties. The board resolution or recommendation is typically by a panel, usually three members, who the parties appoint at the beginning of the project. The panel is impartial in nature because the members are typically external to the project and to the parties.

The three points above are typical of many dispute boards. These are three good reasons to increase the use of dispute boards in complex construction projects. However, there are still jurisdictions (like Mexico) that continue to reject the use of this kind of alternative dispute resolution.

From my perspective, the increased use of dispute boards would benefit public projects due to the complexity and urgency of those projects.  It would be very helpful to have a board, external to the interest of the parties, conscious of the flow of the project, knows the background, and is ready to solve a claim without stoppage of work.

What are then the reasons to reject the use of dispute boards? One potential answer (at least in Mexico) will be provided in the next submission.

Author Juan Pablo Sandoval is a Jr. Partner at COMAD, S.C. His email address is jpsandoval@comad.com.mx.

Litigation in Mexico and Vaccines

The Mexican legal system contains a mechanism called the “amparo,” which literally means “protection” in Spanish.

The “amparo” is a trial to protect human and constitutional rights when individuals believe their rights have been affected by any act of authority. Protected “individuals” include private companies such as those in the construction industry  as well as their employees.

 One important part of the amparo is that it allows for the “suspension” of any such act of authority.

The suspension may consist of an injunction against the act itself or not obligating the person requesting the suspension to comply with the act. In order for the judge to grant the suspension, the petitioner must request it expressly, and prove that the suspension is not contrary to public order and social interest.

The suspension can be granted provisionally pending a final decision, or definitively.

How is the amparo related to vaccines?

On June 24, 2021 the Federal Commission for the Protection against Sanitary Risks (Cofepris) issued the communication 23/2021 which authorized the Pfizer-BioNTech COVID-19 vaccine for the general population over 12 years old.

As a result, parents interested in vaccinating their children older than 12 years applied for their kids to be vaccinated. However, in one case, the request was denied.

Due to the imminent in-person return to school, the parents of the child who was denied vaccination intiated the amparo arguing violations to the right to health as well as the superior interest of children, stating that the return to in-person school would put students at greater risk of getting infected by Covid.

In that regard, the suspension was requested to order the vaccination of the child whose parents submitted the amparo.

By means of interim resolution dated August 16, 2021, a Federal District Judge granted the parents the provisional suspension requested, ordering the responsible authorities to perform the appropriate measures in order to comply with the plan of vaccination, and to vaccinate the child whose parents requested the amparo.

In conclusion, the amparo is a helpful institution to protect human rights, including the rights of minors and other sectors of the population that are at risk. Examples like this lead us to conclude that the amparo and the judicial system is helping the legal system as a whole to address important issues timely and fairly.

Author Juan Pablo Sandoval García is an Associate at COMAD, S.C. (www.comad.com.mx). His email address is jpsandoval@comad.com.mx.

A Brief Update on the Mexican Government Contract Litigation System

The Mexican legal system treats differently disputes with respect to civil contracts (those executed by and between individuals) and disputes regarding administrative contracts (those executed by and between an individual and the public administration). A challenge to an administrative contract follows special rules relevant to the jurisdiction depending on the type of administrative act performed during the execution of a contract.

Until 2018, when the act (or omission) to be challenged in an administrative contract was lack of payment, the courts empowered to resolve the dispute were, like in a private contract, the civil or commercial courts.

However, in June 2018, Second Section of the Mexican Supreme Court of Justice issued a criterion changing the way to demand payments derived from administrative contracts, especially those governed by the Public Works and Related Services Law and the Acquisitions and Leasing for the Public Sector Law.  The criterion stated that lack of payment in administrative contracts cannot be separated from the nature of the conduct that caused the breach, which is administrative. As a consequence, a claim of breach for nonpayment was required to be brought in the administrative forum.

The judicial criterion changed the paradigm, forcing civil and/or commercial judges to reject these claims immediately, generating delays in such cases. Contractors were forced to bring several actions in order to force the administrative forum to issue a position regarding the provenance or non-provenance of the payment claim.

According to the judicial criterion, only when this situation arose or when the silence of the contracting authority creates a right or denies it, does the Contractor have a right to bring a claim before an administrative forum, which is quite different from the civil or commercial courts. As can be inferred, to get to the point that the individual is in a position to file a lawsuit, takes much longer.

Several litigators, including the author, believe that the judicial criterion is unfortunate because of, among other reasons, the issue related to time.

However, a more recent criterion (published February 19, 2021) declared the non-applicability of the previous one for contracts executed under the Mexican Petroleum Law (Law of Pemex). Under this law, it is stated that the civil and commercial principles of law are interchangeably applicable and the relationship between an individual and Pemex, when the relationship derives from a contract governed by the Law of Pemex, has a commercial nature.

This recent criterion is important because it signals a change affecting the commercial nature of the contracts ruled by laws like the Law of the Federal Electricity Commission (Law of CFE), which contains similar provisions regarding the interchangeable applicability of the commercial and civil principles to such law.

Also, the recent criterion resumes the old practice regarding the way to make a payment claim – at least payments derived from the contracts executed by and between Pemex and CFE – allowing litigators to submit payment claims directly to the civil or commercial courts as a civil lawsuit.

The foregoing will help the individual contractor in, at least, two ways. First, it gives the contractor the security that its claim can be brought as a civil lawsuit, having the opportunity to sue the contracting authority when appropriate; and second, it expedites resolution of payment disputes by allowing easier access to civil or commercial Court.

Presumably, the Mexican Judicial System will resume the old criterion regarding the appropriate way to claim the payment of administrative contracts, which means that the way to claim payments in administrative contracts will be by commercial trials. However, as of today, it will be necessary to attend to the specific law that governs the corresponding contract.

Author Juan Pablo Sandoval García is an Associate at COMAD, S.C. (www.comad.com.mx). His email address is jpsandoval@comad.com.mx.

Mexico: Step by Step Toward a Range of ADR Options

The United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention on Mediation, entered into force a month ago. The Convention applies to agreements that result from a mediation of a commercial dispute where at least two of the parties are in different States or that the obligations resulting from the settlement are to be performed in a different State from where the settlement agreement is rendered.

According to the United Nations Treaty Collection, by October 15, 2020, there were 53 signatories, including nations like Chile, Colombia, United States of America and Uruguay; and 6 member states parties to the convention (Belarus, Ecuador, Fiji, Qatar, Saudi Arabia and Singapore). As a Mexican law practitioner, the question is: How is Mexico doing in the area of ADR?

An issue in Mexican contractual relationships, especially in the construction industry, is the way to resolve conflicts.  Regardless of the size or amount of the project, there are generally several parties that look only to their own interests and lose sight of moving the project forward.

Mexico belongs to the civil law system which means that legal relationships are ruled, most of all, from the written law, and even when arbitration has been implemented, the practice is tied to traditional litigation to solve disputes. Additionally, jurisdictional procedures are very formalistic regarding practices like the value of the evidence (most documentary evidence shall be original or certified copy), inter alia.

The use of arbitration has been increasing considerably in complex construction, infrastructure and energy sectors which brings the certainty that a professional in the field who is familiar with the day-to-day in the construction industry will resolve such a specific dispute, rather than a judge whose expertise and knowledge in law would be invaluable, but who would not be necessarily an expert in construction.

Notwithstanding the foregoing, arbitrating during the construction project does not provide a real solution because, in general, arbitration focuses on who wins and who loses, rather than the main objective of the project and its correct performance.

It is worth mentioning that it is not my intention to undermine arbitration. I am a happy practitioner and a lover of arbitration; however, to be honest, arbitration is not always the best ADR option taking into account that in the construction industry, one of the most important objectives is to continue with the projects and avoid unnecessary suspensions or delays in the project.

For those reasons it is necessary, at least in the construction industry, to implement in contractors a culture in which the contractors themselves are the ones who actively participate in the resolution of disputes arising from the contracts to which they are a party.

In that regard, once again the question that needs to be answered: How is Mexico doing in the area of ADR?

An initiative of law has been submitted in the Mexican congress. This initiative is to render an Alternative Dispute Resolution Law, which has as its purpose a social one (as communitarian or indigenous and scholar mediation) but not exactly a commercial one (for commercial mediation is proposed to amend several articles from the Commercial Code). However, if it is approved, it will be the first step to a conciliatory culture and will have a direct impact in the commercial, and of course, construction field.

It is the job of Mexico’s young practitioners to search for new areas in which to innovate, looking around at different experiences like the Peruvian where “Dispute Boards” were used in the Pan-American Games project, helping to avoid unnecessary delays and to carry on the project in a healthy manner, and to try to reach and implement advanced ADR techniques specifically in the construction industry such as the Dispute Boards, where a board of 1 or 3 people resolve in a very quick way, technical disputes, without stopping or delaying the project and eroding contractual relationships, and its resolutions are, depending on the format of the Dispute Board, enforceable.

There seems to be a long way to go, but Mexico has taken the first step by submitting the initiative of Alternative Dispute Resolution Law. I hope that Mexico will get there, step by step, to a place where a range of ADR options are available not only through legislation but also in the contracting culture.

Author Juan Pablo Sandoval García is an Associate at COMAD S.C. (www.comad.com.mx). His email address is jpsandoval@comad.com.mx.